20 Jul What types of leasing or ownership arrangements exist for prospective new farmers?
Answer: Renting farmland is a common practice in U.S. agriculture, where more than 45 percent of the 917 million farmland acres are rented. According to the Agricultural Economics and Land Ownership Survey, 60 percent of farmland rent is paid in cash, 24 percent in shares of production, and 11 percent in a cash/share combination. Following are short descriptions of the various leasing and ownership options.Cash LeaseMost cash leases are short-term, requiring little commitment from either landowner or tenant farmer. Long-term leases can be an affordable way for farmers to use more sustainable practices and to invest more in their businesses. Many leases are based on a handshake. Verbal agreements are considered legal leases for one year, but this is not recommended for either party, as conflicts can arise even among friends when terms are not clearly stated on outset. A written lease provides benefits and security for both parties. Crop Share In this model, rent payment consists of part of the crop, most often paid as part of the income from total crop sold. Also known as “share-crop” and “share lease,” this was historically disadvantageous to tenant farmers, but can work well for beginning farmers without start-up capital. Crop-share arrangements are common in perennial crops and some commodities, for example fruit and nut operations, hay, field crops, processing tomatoes. Agreements may have maximum and minimum limits to protect the farmer and landowner, respectively. Long-Term Lease This model is as close to ownership as a lease can get. The term is usually 40 to 99 years depending on state law. This is longer than the average mortgage. These types of leases may even be inheritable. They are used for publicly owned land and commercial real estate, but are less common in agriculture. They are sometimes used by cities and land trusts who own the land but wish to guarantee farmers lifetime tenure. Because of their longevity, the intent and clauses of leases must be very carefully drafted so they will last as long as the lease term.Lease with Option to Buy or Right of First Refusal There are two ways a lease can improve ownership opportunities for a tenant farmer: ? With a “Purchase Option,” the owner and tenant pre-determine the purchase price, with a date for execution of the purchase. The tenant pays for this option up front, and the rent money can count toward an initial down payment. ? With a “Right of First Refusal” clause, the owner can only sell the land to a third party after the tenant has had a chance to “refuse,” by matching that third-party offer and making the purchase first. This helps ensure that an owner doesn’t sell the land “out from under” the tenant, but the tenant must be ready to act quickly. Fee Title Purchase with Seller Financing In this model the new buyer takes possession of the land and makes payments directly to the seller, as written in a “note.” This works very well when a good relationship has been established. The landowner can see the property transferred to a promising new farmer, and the new farmer can secure that note?sometimes by virtue of his or her “character” more than conventional lending requirements. Even better, brokerage fees are avoided by both parties. Payments can be structured like a typical mortgage, or in the case of an installment or land contract sale, made periodically. This strategy is often a good way to transfer land to the next generation within a family. Fee Title Purchase with Agricultural Conservation EasementAn agricultural conservation easement forever extinguishes development rights on that land, making it less valuable to nonfarmers. These types of easements are used if a landowner wishes to see the land remain available for agriculture: He or she donates or sells the land’s development rights in the form of an agricultural conservation easement to a nonprofit land trust or government agency, which ensures that the easement goals are upheld forever. This can drop the after-easement value, or “easement encumbered value,” of the land into an affordable price range for a new farmer.To learn more, refer to the ATTRA publication Finding Land to Farm: Six Ways to Secure Farmland, available at https://attra.ncat.org/attra-pub/summaries/summary.php?pub=174.